What Fiscal Cliff? Obama Planning Another "Tax Cut" Fiscal Stimulus

Since it would appear that QEternity has ostensibly failed in its main goal of pushing the stock market higher (and mortgage rates lower), the White House seems to be scrambling. Obama administration officials have concluded that the economy, while improved (apparently), is still fragile enough to warrant another bout of stimulus. The same old kitchen sink is being thrown at the problem as they are now resorting to the same fiscal stimulus that has also failed time and time again (as we noted here). As WaPo strawmans reports the White House is discussing the idea of a tax cut that it believes will lift American's take-home pay and boost a still-struggling economy (citing people familiar with the administration's thinking).

Once again we expect 'economists' to come up with counter-factual forecasts.

We can't help but get the terrible feeling of deja vu here (paging Christine Romer). Electioneering? for sure; Will we hear "We have a plan"; of course; but in reality for this to make any sense (in the debt-deleveraging balance sheet recession that we find ourselves in), we must wipe from our minds for one moment the looming fiscal cliff (that our politicians seem stuck with irreconcilable differences), the debt-ceiling/deficit/AAA downgrade debate, and the utter failure of linear-Keynesian model forecasts for stimulus effects in the past.

The White House is weighing the idea of a tax cut that it believes would lift Americans’ take-home pay and boost a still-struggling economy, according to people familiar with the administration’s thinking, as the presidential candidates continue battling over whose tax policies would do more for the country.

Obama administration officials have concluded that the economy, while improved, is still fragile enough that it may need another bout of stimulus. The tax cut could replace the payroll tax cut championed by President Obama in 2011 and 2012, which was designed as a buffer against economic shocks such as the financial crisis in Europe and high oil prices. It expires at year’s end.

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The administration’s work on the proposal comes as each presidential candidate is under intense pressure to demonstrate he has the better tax plan.

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Any new tax cut would require congressional approval after the election. Administration officials have said in the past that the payroll tax cut should be allowed to expire at the end of the year, and the White House has not said publicly whether it is considering an alternative.

A growing number of voices have been calling on the White House and Congress to extend the payroll tax cut, which has meant about $1,000 in extra take-home pay annually for the average family. These supporters include Harvard professor Lawrence H. Summers, formerly Obama’s top economic adviser, and Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee.

“If we’re going to look at anything, we should be looking at a payroll tax cut or other measures that have a similar effect,” Van Hollen said in an interview.

The White House declined to confirm whether it is exploring a new policy, with an official saying late Friday only that “there’s no specific new proposal such as this one at this time.”

The payroll tax cut... is considered particularly effective by economists because it shows up in every paycheck. Economists say it may have boosted economic growth each year by about 1 percent, helping create hundreds of thousands of jobs.

...some lawmakers, particularly Democrats, don’t like the idea of using a tax that ordinarily goes to fund Social Security. Any lost revenue as a result of the payroll tax cut has been offset by additional taxpayer money. Still, powerful interest groups such as the AARP have criticized using the payroll tax cut for short-term stimulus.

The administration is looking to replicate the effect of the payroll tax cut without relying on Social Security revenue, sources said. The people familiar with the deliberations declined to be named because the discussions are ongoing.

One option is to have employers reduce how much in federal taxes is withheld from employees’ paychecks, up to a certain amount per year.

This was precisely the type of tax cut provided in the 2009 stimulus bill, which sought to jolt the economy out of recession through $831 billion in increased spending, aid to states and tax cuts.

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The tax credit was limited to individuals with an adjusted gross income of $95,000 or less and couples with an adjusted gross income of $190,000 or less. Economists say that low- and moderate-income people have the greatest propensity to spend any additional income.

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Obama is calling on lawmakers to immediately renew the Bush tax cuts for families earning less than $250,000 per year, while allowing the tax cuts for those making more to expire. Republicans refuse to decouple the tax cuts.

Read that again - and we dare you not to laugh! This is Keynesian-based Einsteinian madness at its very best...

One report that apparently has scared the administration into action is the following from the National Association Of Manufacturers - Fiscal Shock.

Fiscal Shock Conclusion:

The inaction and stalemate in Washington will continue to weigh heavily on consumer and business confidence as the year winds down. Even if the Administration and Congress resolve the uncertainty before the end of the year, economic growth already has sustained significant damage. The short-term fiscal contraction set for 2013 will trigger long-run durable losses to GDP, productivity and real income.

Even under the best-case scenario, it will take almost a decade for economic activity and employment to reach the levels they would have reached without a fiscal shock. While the spending cuts and tax increases reduce the federal deficit and debt, the substantial negative consequences of not addressing the end-of-year fiscal crisis before it happens will be devastating.

"I believe that to a large extent our current budgetary problems stem from the widespread adoption of an idea by Republicans in the 1970s called “starve the beast.” It says that the best, perhaps only, way of reducing government spending is by reducing taxes. While a plausible strategy at the time it was formulated, STB became a substitute for serious budget control efforts, reduced the political cost of deficits, encouraged fiscally irresponsible tax cutting and ultimately made both spending and deficits larger."

-Bruce Bartlett, Domestic Policy Advisor to Ronal Reagan

Politicians have been following that strategy ever since. I believe it is known as having one's cake and eating it too, except the cake is your aunt Helga's fruitcake from 1980.

Why stop there (Reagan)? Everything was peachy under Carter, if you ignore the high inflation and overall malaise (Carter's own words), wasn't it? How about under Ford, with his Whip Inflation Now campaign? Or Nixon, who imposed wage and price controls. Or...well, you get the message. What the US needs is a replay of the Warren Harding administration, minus the scandals.

Notice the clever wording about how they will take the tax cut from "somewhere else rather than from social security revenue" (AS IF social security revenues are actually allocated and held for such purpose rather than just another tax that goes into the same pot as every other).

I could give two dumps...sorry, make that one dump on what, when, where, and how. Give me a tax break, give them a tax break, break it off in your arse. This thing is coming down not matter what. I will continue to exchange your currency for my money.

Correct. That kind of crazy ideas, driven by Keynesians, are the ideas that have led to this crisis. Obviously that less tax is healthy for the economy. But this can not be done without a plan to reduce government spending to keep the balance in the accounts. The rest is magic ... and magic is trick.

i cannot disagree with you on this. the point in my view of "normalization of rates" policy would be to upwardly slope the yield curve and promote lending activity of our still bankrupt "mega banks." while nakedly inflationary i do agree "it creates a tax hike all its own" through bracket creep, etc. the hope as i would see it is that Government's that have refused to "right size" their policies towards what their constituents can handle will at the very least be understood as "engaging in risky behavior" and be penalized accordingly. Those States that have kept themselves "lean and mean" (Texas comes to mind) will be rewarded. on the good side the market is obviously all in on "deflation" as they keep front running the Fed every time Ben opens his mouth about some new bailout scheme that has no chance of working. (Ala Japan of course.) And the USA does have the cheapest and most valuable fuel source in the world in the form of natural gas. this advantage should be leveraged to PAY DOWN the debt...not "leverage the debt so we can create more of it" as is currently done. I am open to suggestions for alternatives of course...

Just a friendly word of advice, give up being concerned about what others (like gov't and other things out of your/our/my immediate control) and focus on doing what is needed to defend and protect what is yours and those you care about. In all likelihood the sun will rise each morning, regardless. All that external stuff is noise.

OK Fonz, let's look at this in a critically clinical manner.Obey and the Mitten come to your house to mow your lawn. You have but one lawn mower. Who be the supervisor and who will actually mow?

Answers: multiple choice

a) Obey will mowb) Mittens will supervisec) They'll come to a bipartisan agreementd) It'll start a fistfight e) One will break a bottle over the others headf) Krugman will say it's the best way to get people back to workg) Chris Matthews will say its a racist trick questionh) The Fonz would make a fortune selling ticketsi) None, some or all of the above, but who the fuck caresj) Ron Paul 2012

Well let's take it a step further. If they came to my door right now.....I would send Obey out to the empty stop and shop with my grocery list. I would tell Mittens to get moving cleaning the leaves out of my gutters and clearing my drain pipes for Sandy. I would be curious to see who comes up more empty handed. Obey on the food or Mittens scouring my neighborhood for some mexi's to get moving on the yardwork. My guess is they both sit there on my couch drinking beers watching the saints game while my neighbors tree is leaning on my roof and I am scrambling.

You forgot the all-important step of FINANCING the transaction. Somebody has to float a bond for the $20 borrowed dollars which is paid for by money printed by The Fed, handed to the banks who then buy the bond with it. Of course, the coupon on the bond is in excess of the interest rate on the money that the banks borrowed from The Fed to buy the bond so the banks pocket the difference. Plus various fees and services. And then they use that bond as collateral on another transaction since it is, of course, backed by the "full faith and credit of the United States."

Now the real fun part..... in the end, the lawn never actually gets mowed. The worker is simply counted as "employed" since he already received his pay for the job. He then promptly walks away from the job since he's got only downside beyond this point. The owner of the property gets ticked off and hires an attorney and things spiral downhill from there.

I couldn't quite figure out how the home owner gets foreclosed on by the same bank that floated the bond, but I'm sure it would happen somehow. I'm just not sharp enough to figure it out right now.

Where's the part about the cops showing up, shooting your labrapoodle and handling a section 8 voucher to the illegals baby mommy? Oh, and a citation for you having installed a storm door with out a permit.

Since government activity counts towards GDP, couldn't they just expand the government to increase GDP? Just add 10 percent to the budgets of every department. As long as the GDP increase exceeds the growth in new debt, it counts as a success, right?

Unfortunately, the gobumint employees would all say; "Rightie-O"The BLS seasonal redacting perpetual adjustment factor would expand the economy 500 fold due to the 370,230% multiplier effect conjured out of thin air, Paul Krugman would wet his pants and nobody'd believe believe it or even care.

If they really wanted you and I to take home more money they could declare an income tax holiday for a year! But then I get to thinking hell it would not be fair for those that do not pay income taxes in this fucked up world where the working take a big screwing everyday.

Seeing how the FeEd cannot go bankrupt because they can print should bring cheers of joy from the MMT crowd!

I agree with Bruce Krasting. Obey will boost the economy with the red money plan and send Mittens and his buddies scrambling with all their green in hiding. Will prob never happen but it would be a blast if Obummer had the balls to go for it.

The reason you need a payroll tax cut is because these are people that are: 1) paying into the system and 2) actually going to work every day and doing something that provides a good or service.

The workers start to get a little grumpy when they need to be somewhere they don't want to be for 6-12 hours a day and then forfeit a portion of their earnings so other people can sit on their ass and complain each day.

I don't have anything against providing well fare or food stamps but these people need to add something to the country except just being "consumers." I am a worker and a consumer. Roads are crappy, bridges are crumbling, schools are dirty but yet the govmint is just paying xx% of the population to just sit home on their asses.

Anybody make the big mistake of upgrading to Windows 8? All my old programs were gone...oops, not quite correct...hidden in a folder called windows.old but most were now unusable. The tile GUI? Please, was that designed by 12th graders? Totally inflexible and counter productive. All in all I thanked the heavens that I only have ONE Winodws computer left besides several Macs. MS once again missed the big chance to finally break with Windows and come up with something much better. But with buffoons at the helm like Balmer that won't be happeing anytime soon.

just take a look at the market for MBS. SOARED on the news. NOT a victory in my view however. Senator Schumer BUCKLED the Chairman...and the result is Obama loses. He needed inflation/risk. the irony is that natural gas prices which collapsed last year actually allowed the President to push for something overtly..."economical"...for lack of a better word. Indeed with the largest stake in General Motors being the taxpayer he could have had natural gas powered pick ups rolling off the line for sale for 9,999 a pop "with trade in." would have changed the energy equation IMMEDIATELY. Instead you have full on USSA and a real disaster looming in the Middle East. IMHO WRONG ANSWER on both Syria and interest rate policy...throw in an assassinated Ambassador with no response and you have more than enough to cause a sitting President to in fact lose his re-elect. To Mitt Romney of all people! HUGE upset if it in fact occurs. Trust me...you will see BIG TIME CHANGE if Romney wins. This guy is NOT status quo and he is not Texas. You get "economics 101" with New Englanders. Indeed even if Obama pulls it out...

Greek police arrested the editor for publishing names of wealthy Greeks with money in Swiss accounts [Reuters] Greek police arrested the editor of a weekly magazine for publishing a list of more than 2,000 names of wealthy Greeks who have placed money in Swiss bank accounts, police said.

The so-called "Lagarde List", which led to the arrest of editor Costas Vaxevanis on Sunday, was given to Greece by French authorities in 2010 with names to be probed for possible tax evasion - has been a topic of heated speculation in the Greek media.

It is named after International Monetary Fund chief Christine Lagarde, who was French finance minister when the list was handed over. The "Hot Doc" magazine published the list of 2,059 names, including some well-known business and political figures, on Saturday.The magazine said it had been sent the list anonymously.

Authorities did not confirm if the list was authentic. A prosecutor ordered the arrest of Vaxevanis on Saturday for violating laws on releasing private data and he was arrested Sunday, police said. He was released pending trial after appearing before a prosecutor on Sunday. "He published a list of names without special permission and violated the law on personal data," a police official said. "There is no proof that the persons or companies included in that list have violated the law. There is no evidence that they violated the law on tax evasion or money laundering," the official added.

'Starving' Greece

The list has inspired heated discussion in near-bankrupt Greece, where public anger at politicians and the wealthy elite grows as austerity measures take a toll on the poorer sections of society. In a video sent to the Reuters news service by his magazine, Vaxevanis appeared on camera to defend his decision to publish the list. "I did nothing other than what a journalist is obliged to do. I revealed the truth that they were hiding," he said in the video.

"If anyone is accountable before the law then it is those ministers who hid the list, lost it and said it didn't exist. I only did my job. I am a journalist and I did my job." He said he had not committed any wrongdoing and accused authorities of trying to muzzle the press.

"The important thing is that a group of people - when Greece is starving - make a profit and try to create the Greece they want," he said. "Tomorrow in parliament they will vote to cut 100-200 euros [ in pay for the Greek civil servant, for the Greek worker while at the same time most of the 2,000 people on the list appear to be evading tax by secretly sending money to Switzerland."

Thank you for your support. In fact each and every citizen, documented or not, was awarded $50,000 in cash. This money is being held for you at JPMorgan, Goldman Sachs, Bank of America, or Citigroup. Your money is being managed and invested for you and you will be payed back many times over with a revitalized economy, more jobs, higher salaries and national health care.

You can pretend all you want that this has to do with Obama or liberals or Jews or blacks or Arabs or whoever. Or, from the other side, you can pretend all you want that this has to do with the rich or corporations or rednecks or the military or whoever.

The truth is this: Americans believe there is a rich, creamy nugget of oil at the center of the Earth that will power our cars, trucks, planes, and lifestyles forever. We just have to go out and find it, no matter who we have to trample over. And once we find it, it will last forever, and every generation after us will do better than we did. Our kids will live to 150 and be multimillionaires. Their kids will live to 200 and be billionaries. And then their kids will live to be 300 and be trillionaires.

We are so confident in this that we decided to tie our entire debt money system to it.

This is the system we all grow up with, are all socialized into. The surface differences are there but are somewhat of a distraction.

And if you point any of this out, you are ostracized...you are negative, cynical, pessimistic, paranoid. Surely there must be something wrong in your head.

And we internalize this and then drop out and nobody hears from us again.

And America just keeps on circling the drain, awaiting those barrels of black gold that will surely overturn all laws of nature.

"Economists say that low- and moderate-income people have the greatest propensity to spend any additional income."

Which is why there's a huge personal debt problem, and those debts are where most that money would go right now, except for those already over their own "fiscal cliff", but I don't think people buying dozens of cans of Beefaroni to fed their families is going to give us the GDP bump they expect.

If I can see this, why can't these dipshit "economists", what with their brilliant and expertly-trained minds?

The bailouts of the banks and insurers and corporations - a reward for gambling and theft - were also a future tax increase on every current and future citizen of U.S.S.A. (if, by some miracle, it is ever paid).

If it's good enough for the crooked banks and corporations it's good enough for me.

Cut my taxes and increase my entitlements and to Hell with the debt, right?

Hey I'm all for a tax cut and I don't care who gives it to me. It isn't my debt and I could give a crap what happens to those dumb enough to hold it. More power to Obama and Bernanke... At least I know what to expect.

Obama is a stubborn bugger. He is so anxious to tax the rich that he is going down in flames. He should have made the Bush Tax cuts permanent a long time ago. However, he realized that by doing nothing he could get his tax hike without actually having to take any action. He could then make a few cosmetic changes by exempting people below a certain income. Now that he is faced with the specter of defeat he is desperately trying to throw out a bone. However, this is probably too little too late. Even if he is re-elected, he is buggered by his own economic policies before he starts his second term.